The Congress of El Salvador approved in the early morning of this Wednesday a law that will convert bitcoin into legal tender in the country , making this Central American nation the first to adopt a cryptocurrency with which it seeks to boost its economy.

“The purpose of this law is to regulate bitcoin as legal tender, unrestricted with liberating power, unlimited in any transaction,” reads part of article 1 of the new regulations approved and called Bitcoin Law, which will be sent for its respective sanction to President Nayib Bukele.

The Bitcoin Law has only 16 articles, and was approved with the votes of 62 deputies, including 56 from the bench of the majority New Ideas (NI) party, allies of President Bukele, who announced that this week the regulations for your approval.

«T he Bitcoin Law has just been approved by a qualified majority in the Legislative Assembly. 62 out of 84 votes! History ! ”Was the president’s first reaction on social media.

In effect, the bill was presented to legislators on Tuesday night by the Minister of Economy, María Luisa Hayem, and after a quick discussion in the Financial Committee of Congress, it obtained the endorsement to be presented before the legislative plenary session that, Ultimately, it passed the law even though minority opposition parties refused to support the law.

Free market exchange rate

According to the law, “the exchange rate” between bitcoin and the US dollar “will be freely set by the market.” “This is a law that will put El Salvador on the world’s radar, we will be more attractive for foreign investment,” said Romeo Auerbach, a deputy from the Gran Alianza por la Unidad Nacional (Gana) party, also an ally of Bukele.

Meanwhile, deputy Anabel Belloso, from the opposition Farabundo Martí National Liberation Front (FMLN), lamented that “the law was not discussed with specialists, nor with patience.”

“The law has many implications in the economic sphere and not everyone is clear about how this is going to work, taking into account that cryptocurrencies are volatile in the market, they are unstable,” Belloso said.

According to the regulations, “every economic agent must accept bitcoin as a form of payment”, but those who “by notorious fact and evidently do not have access to the technologies that allow transactions in bitcoin ».

The law also makes it clear that for “accounting purposes” the US dollar will be used as a “reference currency” and states that “all obligations in money expressed in dollars, existing prior to the effective date of this law, may be paid. in bitcoin ».

According to the regulations, the State “will provide alternatives” that allow the user “automatic and instantaneous convertibility of bitcoin to dollar if desired.

Volatile Bitcoin?

For the economist and former president of the Central Reserve Bank of El Salvador , Carlos Acevedo, the use of cryptocurrencies carries risks and the main one is its “volatility.” “Cryptocurrencies are too volatile and risky to be able to fulfill the basic functions of money as a store of value, a medium of exchange and a unit of account, as economics students learn from introductory courses in the profession,” Acevedo pointed out in an opinion article that he published in the digital newspaper El Faro.

According to President Bukele, giving bitcoin legal tender in the country aims to create jobs and also “give financial inclusion to thousands of people outside the formal economy.”

According to Bukele, “70% of the Salvadoran population does not have a bank account and works in the informal economy.”

According to the president, among some aspects that could improve with the use of bitcoin are the sending of remittances by Salvadorans from abroad.

For the ruler, bitcoin represents “the fastest growing way to transfer” those billions of dollars in remittances and to prevent “millions of dollars” from being lost to intermediaries.

In the dollarized economy of El Salvador, the remittances that Salvadorans send from abroad are an important support and are equivalent to 22% of their Gross Domestic Product (GDP).

In 2020, remittances totaled $ 5,918.6 million, an increase of 4.8% compared to 2019, according to official reports.